Insider Business Club: Companies Act

Will the Act make it easier to be a company director in the UK?

Philip Bovey, Companies Bill Team, DTI

We hope so. It is designed in many respects to bring the existing law into
line with how people actually deal with things and that is particularly true
with small companies. The existing law was drawn up for large public companies,
essentially Victorian entrepreneurial activities.

They are no longer the typical company. The typical company is now the small
private company and we have set out to start with their concerns and interests
and we have got rid of a number of concepts which may not be the real life,
day-to-day practice of small companies but which are fundamental.

One of the people at our implementation working party last week asked whether
directors could rely on the statement of directors duties now, to which the
answer is yes. Parliament has now said that that is what the present law is and
people can rely on that. On the duty or the right to sue directors it is
undoubtedly the case that there are some changes. At the moment you can only sue
for negligence if the director profits from the breach and now you will be able
to sue as if it were a simple negligence.

Is there anything that directors should fear in the Act?

Martin Williams, managing director, Graydon

From a credit industry standpoint we do have some concerns about some of the
provisions within the Act. We are particularly concerned about the Act in
relation to the public availability of directors’ home addresses on top of
previous legislation regarding the rise in the audit threshold and the
introduction of abbreviated accounts.

Some credit agencies, for instance, are suggesting to their clients that they
check out individuals that run small businesses and get credit checks done on
the directors of small companies and then blend that score with a commercial
score on their business to make the decision.

We are worried about an absence of public record information on small
businesses in particular. Small businesses often get paid late by their
customers, so it is essential that they protect their cash flow by getting the
best credit terms from their suppliers.

On the subject of fraud, it is extremely useful and has proved extremely
useful to have access to directors’ home address from a credit agency point of
view in order to protect credit managers from potential fraudsters.

Could the Act put people off from acting as directors?

Rita Dattani, senior lawyer, Norton Rose

The concerns that our clients have expressed when we have spoken to them are
about the changes principally relating to codifying directors’ duties and
particularly the new duty to promote the company’s success for the benefit of
its members as a whole, as well as putting on a statutory footing the ability
for shareholders to sue directors in respect of wrongs done by those directors.
Those two aspects together – giving shareholders increased rights to sue and
increasing and extending somewhat the duties imposed on directors – have caused
a lot of potential concern about whether this Act put potential directors off
accepting directorships.

I don’t think that is a fundamental change, but I think it builds on what has
already happened in the US. You have Sarbanes Oxley, you have the Enron,
Parmalat and WorldCom scandals and the concern is that some of the provisions in
the Act may make the regulatory environment more difficult for UK directors.
There are parts of the Act which make directors’ lives easier. There are parts
that provide welcome protection for directors.

What are businesses likely to be concerned about?

Clive Edrupt, company affairs, CBI

On the business review, we thought we had got the clauses more or less
complete with all the stakeholders and the government.

But back in the spring when the new business provisions went into the Act it
caught everybody rather by surprise to file this very late change with very
little time to discuss or do anything about it.

The context of the changes is slightly different to the OFR. You can argue
that the section of the review doesn’t catch many companies and perhaps it is
not the largest companies who have been targeted by people wanting more
information about their arrangement of supply chain overseas etc.

I think there is a lot of misunderstanding about what the clause is all about
and why it is there and whether it should be there. We never had that chance for
the debate because it all happened so quickly.

From a business point of view I think there is an important point for the
business which is the liability issue, because what has changed from the OFR.

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